This article explains the basics of Stablecoin cryptocurrency and how it can be integrated into your business model to make it global.
In January this year Elon Musk announced that Tesla merchandise stores will accept Dogecoin as payment. This shot the coin price up by 14 per cent, though it fell back later. Similarly, last year, Bitcoin prices also jumped manifold after Tesla announced it had invested in it and would soon allow customers to buy their cars with this cryptocurrency. The company later scrapped that idea, citing unrealistic energy usage to keep the Bitcoin blockchain functioning.
These irrational crypto price fluctuations may not be good for businesses but there are definite patterns suggesting companies should start accepting payments in cryptos and take their ventures global. Transactions on blockchain don’t involve a centralised banking system, which even after existing for centuries is still not truly meant for global businesses. Transaction limits, foreign exchange fees and charges, unpredictability of time in transferring funds are the very reasons cryptocurrencies have become a great alternative for businesses to build a global presence. Not to mention that these work the same around the world, with all the transactions recorded on a decentralised public ledger called blockchain. Whether you sell software services or digital products or airline tickets, you can leverage the power of Web3 to truly operate your business on a global scale. But price fluctuations remain a challenge.
Unlike cryptocurrencies like Bitcoin and Dogecoin, which are prone to skyrocket and crash ten times a day, the Stablecoin cryptocurrency’s price (as the name suggests) remains pretty much stable and is not prone to such volatility. By definition, a Stablecoin is a digital currency whose value is tied to another asset with a stable price. The value may be tied to traditional fiat currencies like US dollars or pounds, or to precious metals like gold, or algorithms that are proven to be stable and non-volatile.
Let’s understand each category of Stablecoins with examples.
Fiat-backed Stablecoins: Values of these types of Stablecoins are tied to traditional fiat currencies. As an example, a Stablecoin called USDT, which is pegged to the fiat US dollar ($) will have dollar reserves to back every Tether created. It will also remain at the same value as the dollar (~1 USDT = 1 US$). How is this possible, you may ask? Well, if the Stablecoin’s price moves higher or lower than the fiat, an arbitrageur – a qualified professional who monitors these irregularities in value – quickly brings the price back to its normal rate by varying the supply of USDT. So if the USDT is selling at a value above the US dollar, these investors will increase the supply of the Stablecoins to bring it back to the fixed price.
Other examples of such stable cryptocurrencies are BUSD and USDC Stablecoins. Tether is the largest Stablecoin in the world with the third-highest market cap in cryptocurrency. Seventy-two billion dollars’ worth of Tether is in circulation, a number that is less than only the worth of Bitcoin and Ethereum.
Crypto-backed Stablecoins: These are similar to fiat-backed Stablecoins but instead of having a fiat reserve, they have cryptocurrencies as their reserve. A crypto-backed Stablecoin deals with the volatility of the crypto market by over-collateralising the reserve to prepare for any change in price. For example, if you want to mint 1 WBTC (Wrapped BTC) valued at US$ 100, you have to pay US$ 150 dollars at 1.5x collateral. Crypto backed stablecoins are backed by crypto collateral like Ethereum and run by smart contracts on the blockchain. However, some crypto-backed Stablecoins are run by decentralised autonomous organizations (DAOs). Examples are DAI, Wrapped Bitcoin, and Wrapped ETH.
Algorithmic Stablecoins: Unlike fiat-backed and crypto-backed Stablecoins, an algorithmic Stablecoins is not backed by any crypto or physical assets. Instead it relies on algorithms to control the supply of Stablecoins without the need for a reserve currency. The algorithms burn or generate more tokens, thus varying the supply to keep the value of the coin stable. Algorithmic Stablecoins are rare and hard to operate, and may fail if the algorithm fails to work according to the desired setpoints in demand and supply. UST is the most famous algorithmic Stablecoin in the world and it was tied to Luna. The collapse of the UST led to an ultra dip in the price of Luna, leading to a loss that ran into hundreds of millions of dollars.
Commodity-backed Stablecoins: Physical assets such as precious metals, oil and real estate are collaterals for these Stablecoins. They are backed by reserves held by a central authority. These Stablecoins usually come in handy for those who want to swap tokens for cash or get the underlying tokenized asset. Tether Gold (XAUT) and Paxos Gold (PAXG) are two examples of the most liquid gold-backed Stablecoins.
|Extremely low volatility||Suffer from high volatility|
|Backed by fiat currency, algorithms or precious metals||Not backed by specific assets|
|Most are controlled by a central authority||Not controlled by a central financial authority|
|Used mostly for savings||Used mostly for trading and investing|
|Examples are USDC, USDT, DAI||Examples are Bitcoin and Ethereum|
Table 1: Stablecoins vs other cryptocurrencies
Building businesses on top of Stablecoins
People trust Stablecoins because they are not volatile unlike other cryptocurrencies. They can be easily traded for fiat currencies on trading platforms, making cross-border payments easy and fast. But how can businesses start accepting Stablecoins as a means of payment?
Earlier, this was really hard as one had to hire a blockchain engineer who would then write some smart contracts for you to allow crypto payments in your wallets corresponding to purchases on your web store. However, a few crypto gateways now allow you to accept various cryptocurrencies, thus enabling you to conduct business using all the benefits of blockchain.
Though it’s still very new, from my personal experience I can recommend Lazerpay (https://lazerpay.finance) which is one of the easiest, open and developer-friendly crypto gateway available. It has state-of-the-art tools and resources to help you take your business global.
Working with this gateway is as simple as integrating checkouts on your website or e-commerce store, just like a regular payment gateway. You can even generate instant payment links and QR codes to start accepting Stablecoins in no time. You can also receive donations in Stablecoins by creating donation links, if you run an NGO. It supports payments in multiple Stablecoins, including USDT, USDC, BUSD, and DAI. Once you receive the payment you can transfer it to one of the supported crypto wallets like Metamask or to your bank account.
For developers, there are many official and community supported SDKs (software development kits) built to interact with their easy to use and secured APIs. So you can use Lazerpay with Node.js, Python, React and any modern application.
Even if you don’t have a website, you can generate easy-to-share payment links from your dashboards, thus automating a previously manual process.
Blockchain and Web3 are still very new technologies and have a long way to go. But there’s no doubt that Stablecoins have made it super easy to accept payments and donations globally, which can help you scale your business. So try and leverage this opportunity to keep pace with our ever evolving world.